A large number of individuals are oblivious of their credit scores and how they are calculated. A credit score is now increasingly used by employers, lenders, landlords and car loan vendors. Unfortunately most consumers are not aware of it and how it is calculated.
The calculation of a credit score is based on a credit report. A special type of software from Fair Issac Corporation Company or FICO is used for this. That is why it is also called a FICO credit score.
A credit report is a detailed account of an individual's credit history, debts, loans, repayments and credit enquiries. It shows if a person has been paying his monthly bills in time and whether there have been any defaults. If also indicates if a person has fulfilled the terms of contract with lenders, the types of credit he is having and his complete credit history.
The three main credit bureaus which maintain an individual's credit record are Equifax, TransUnion and Experian. Banks, utility companies and other lenders have direct links with these companies. All financial details with individuals tend to be reported to them after every loan and every repayment. Any non-fulfillment of credit obligations gets immediately reported and included in a credit report.
The first step in improving credit score is to understand a credit report. It is composed of the following components:
Payment History
This accounts for 35% of the credit score. It indicates if monthly bills have been paid in time and if there are have been any overdue amounts.
Extent of Indebtedness
Many individuals may are ignorant that their volume of credit constitutes about 30 percent of the credit score. Thus if a person has been maximizing his credit limits, that will affect a credit score negatively. Therefore, it is prudent to keep utilization of credit below your borrowings limits, preferably below 40%.
Length of Credit History
The longer a person has been having credit, the better it is. The length of time over which a person has been having credit weighs about 15% of the credit score.
Types of credit
Composition of one's credit accounts for 10% of the credit score. It could be a mix of loans, credit lines, student lines, credit cards, car loans, student loans, retails credit etc. Some of these like student loans are on softer terms while as some like credit card debts carry very high rates of interest. While the former may not be viewed as negatively, the latter is quite repugnant.
New Credit
It may be surprising to know that even credit enquiries on one's file makes up about 10% of the credit score. So try to limit the number of credit enquiries.
A credit score varies between 350 and 850. The average score is about 650 to 700. Any score above 680 is considered to be good for any type of credit and below 560 poor. While 850 indicates an excellent score, 350 is a very bad score.
Credit history of up to 7 years is used for the calculation of a credit score. In order to fix credit scores, it is important that credit card debt is completely eliminated, all monthly bills are paid in time and credit is used judiciously. If one credit has gone bad due to some reason, one should rebuild it as fast as possible. How to raise your credit score starts undoubtedly first with understanding credit rate score.
The calculation of a credit score is based on a credit report. A special type of software from Fair Issac Corporation Company or FICO is used for this. That is why it is also called a FICO credit score.
A credit report is a detailed account of an individual's credit history, debts, loans, repayments and credit enquiries. It shows if a person has been paying his monthly bills in time and whether there have been any defaults. If also indicates if a person has fulfilled the terms of contract with lenders, the types of credit he is having and his complete credit history.
The three main credit bureaus which maintain an individual's credit record are Equifax, TransUnion and Experian. Banks, utility companies and other lenders have direct links with these companies. All financial details with individuals tend to be reported to them after every loan and every repayment. Any non-fulfillment of credit obligations gets immediately reported and included in a credit report.
The first step in improving credit score is to understand a credit report. It is composed of the following components:
Payment History
This accounts for 35% of the credit score. It indicates if monthly bills have been paid in time and if there are have been any overdue amounts.
Extent of Indebtedness
Many individuals may are ignorant that their volume of credit constitutes about 30 percent of the credit score. Thus if a person has been maximizing his credit limits, that will affect a credit score negatively. Therefore, it is prudent to keep utilization of credit below your borrowings limits, preferably below 40%.
Length of Credit History
The longer a person has been having credit, the better it is. The length of time over which a person has been having credit weighs about 15% of the credit score.
Types of credit
Composition of one's credit accounts for 10% of the credit score. It could be a mix of loans, credit lines, student lines, credit cards, car loans, student loans, retails credit etc. Some of these like student loans are on softer terms while as some like credit card debts carry very high rates of interest. While the former may not be viewed as negatively, the latter is quite repugnant.
New Credit
It may be surprising to know that even credit enquiries on one's file makes up about 10% of the credit score. So try to limit the number of credit enquiries.
A credit score varies between 350 and 850. The average score is about 650 to 700. Any score above 680 is considered to be good for any type of credit and below 560 poor. While 850 indicates an excellent score, 350 is a very bad score.
Credit history of up to 7 years is used for the calculation of a credit score. In order to fix credit scores, it is important that credit card debt is completely eliminated, all monthly bills are paid in time and credit is used judiciously. If one credit has gone bad due to some reason, one should rebuild it as fast as possible. How to raise your credit score starts undoubtedly first with understanding credit rate score.